Employment to hit record levels as economy continues to grow

Ibec warns that recovery raises concerns about competitiveness

All households should finally start to see some benefit from a recovering economy this year with employment expected to reach record levels as Gross Domestic Product (GDP) climbs 5.6 per cent, according to a new forecast.

Business group Ibec’s latest quarterly economic outlook predicts consumer spending will rise around 4 per cent this year in value terms as the economy approaches full employment, with more than 2.2 million people at work and the State experiencing the fastest real wage growth in Europe.

That would bring household spending above €100 billion for the first time.

“Total household purchasing power, excluding borrowing, has never been greater in the history of the State,” said Ibec in its report.

However, the group’s head of tax and policy, Gerard Brady, said the success of our economic recovery is creating its own problems.

“While incomes and demand have recovered to their pre-crisis peak, so have many domestic business costs,” he warned.

He pointed to the view of the National Competitiveness Council that Ireland is a “relatively high-cost location”, and noted that, as a small open economy, we remain extremely vulnerable to external price shocks through exchange rate changes, interest rate rises or higher energy prices.

While these factors have worked in our favour in recent years, that is not guaranteed to continue, Ibec said.

“The story in today’s report is a positive one. The economy is growing, trade remains robust despite Brexit, and households are clearly benefitting through incomes which are increasing at the fastest rate in Europe,” Mr Brady said.

He said the main question facing the economy over the coming years would be the country’s ability to sustain growth without experiencing “significant competitive erosion”.

“It is important we focus on the competitiveness factors we can control at home,” he said.

Brexit

Ibec forecast the economy would continue to grow in the coming years albeit at a slower rate, with the organisation predicting GDP would increase by 4.8 per cent in 2019.

It also said it expected employment to grow 2.3 per cent next year, while consumer spending would rise by 3.1 per cent in volume terms.

Mr Brady warned that industry sectors already dealing with the uncertainty of Brexit were at particular threat from rising costs.

“Our analysis today shows that the price of Irish food exports going abroad has been badly affected by the sterling exchange rate shock and is back to levels last witnessed in 2009,” he said.

“As a small open economy, we remain extremely vulnerable to further external price shocks through exchange rates, interest rate hikes or rising energy prices. These have provided a major boost to our cost competitiveness in recent years but continuing tailwinds from these sources are far from guaranteed,” Mr Brady added.

Ibec, which has consistently warned about a lack of investment in infrastructure spend, said the launch of Project Ireland 2040 earlier this year was a positive move. However, it said it was critical the country moves to ensure fast delivery of projects while also providing value for money.

“This will be increasingly difficult if cost issues throughout the economy are not addressed,” said Mr Brady.